An all-party parliamentary meeting has been told of the growing concern about foreign language provision in Wales. Photograph: Photolibrary Wales/Alamy

The decline in modern foreign languages in Wales is a social exclusion issue, according to the director of the Welsh national centre for languages (CILT Cymru).

"In 1995, 55% of pupils in Wales took a GCSE in a foreign language, now the figure stands at 22% and in areas of high social deprivation, like Blaenau Gwent, it's 11%," Ceri James said.

James, speaking at an all-party parliamentary group meeting at the House of Lords on Wednesday, expressed his concern at the Welsh government's decision to remove a modern foreign languages (MFL) unit in the Welsh Baccalaureate (Welsh Bacc).

James said that while the decision to remove languages from the Welsh Bacc was the trigger for the meeting, the challenges to foreign languages in Wales "runs far deeper," and that pupils are disadvantaged compared to their English and Scottish counterparts.

In England and Scotland foreign languages are to become compulsory at primary level from September 2014 and they are a compulsory for the English Baccalaureate (Ebacc), the performance measure Ofsted takes into account when inspecting schools in England. In Wales, foreign languages will not form part of the primary nor secondary curriculum.

Baroness Jean Coussins chaired the meeting, hearing statements from representatives from schools, higher education and business. The crossbench peer said that although being a country of bilingual speakers, MFL provision is suffering in Wales, where children have the lowest participation rate in language learning compared to the rest of the UK.

The meeting was called amid concerns that the U-turn on the inclusion of languages as a compulsory component of the Welsh Baccalaureate is a "retrograde step for Wales".

"We're at a crossroads," Claire Gorrara, chair of the University Council of Modern Languages for Wales, said. "There's compelling evidence that multilingualism benefits the individual, the economy and the culture of a nation, but we're at a time of increasing funding austerity and modern languages are not a priority for support."

Gorrara said a shrinking pipeline of secondary school students able to go to a Welsh university and develop their language skills is having an impact on the Welsh economy and culture. She also added that there is a "lack of interest from key bodies".

In a letter to Huw Lewis, minister for education and skills, Gorrara raised her concerns over the slashing of CILT Cymru's funding. Lewis responded by describing the decision as regrettable, but necessary to "ensure that sufficient funding is available to support the Welsh government priorities of improving literacy and numeracy skills, and reducing the impact of poverty on attainment".

Sarah Grain, export sales manager for Caerphilly-based company Eriez Magnetics Europe, said she struggles to recruit young people because they lack the requisite combination of language and business skills. "Young people are unaware of the importance of language skills for their career prospects," she said.

Lord Aberdare described the plight of languages in Wales as a "self-harm situation".